2023 (1) TMI 1392 - AT - Income Tax

ITAT rectifies order following Supreme Court decision on delayed PF ESI contributions under section 36(1)(va)

ITAT Cuttack rectified its earlier order following SC decision in Checkmate Services case. The tribunal held that delayed employees' contributions to PF ... Rectification of mistake - Delayed Employees' contributions to PF & ESI - HELD THAT:- As payment of PF & ESI under the respective Acts, the issue is now squarely covered by the decision of case of Checkmate Services (P.) Ltd. [2022 (10) TMI 617 - SUPREME COURT] Admittedly, once the Hon’ble Surpeme Court decides on the legality of a particular section and the interpretation thereof, such interpretation has the effect from the date of incorporation of the said proviso. This being so, admittedly, there is a mistake apparent from the record in the order of the Tribunal. Consequently, the order passed by the Tribunal stands recalled and restored to its original number. Miscellaneous application filed by the revenue is allowed. Delayed payment in respect of employees contribution to PF and ESI -Admittedly, the Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd(supra) has categorically held that the employees contribution to PF and ESI to the extent it is not paid within due date prescribed under the PF Act, is not allowable u/s. 36(1)(va) of the Act. The Hon’ble Supreme Court has also admittedly held that the provisions of section 43B of the Act would not apply to the provisions of section 36(1)(va) of the Act in respect of employees contribution. Respectfully following the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd (supra), we are of the view that the delayed payment in respect of employees contribution to PF and ESI is not allowable. In the case of Nirakar Security & Consultancy Services Pvt Ltd. [2022 (11) TMI 69 - ITAT CUTTACK] as the amount is not allowable under section 36(1)(va) of the Act and same is also not covered under section 43B of the Act, the amount of delayed contribution to PF and ESI in respect of employees contribution would be treated as income in the hands of the assessee u/.s.2(24)(x) and on subsequent payment of the same, it would be a business expenditure, which can be claimed u/s. 37(1) of the Act. We are not expressing any opinion in regard to his arguments as it has not been examined by the lower authorities. Liberty is also granted to the assessee to raise all arguments as are found necessary by him before the lower authorities. The issue in this appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity of being heard. Assessee stands partly allowed for statistical purposes. Issues Involved1. Rectification of the Tribunal's order under Section 254(2) of the Income Tax Act.2. Allowability of employees' contributions to PF and ESI under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act.3. Application of the Supreme Court decision in Checkmate Services Pvt. Ltd. case.4. Re-adjudication of the issue by the Assessing Officer.Detailed Analysis1. Rectification of the Tribunal's Order under Section 254(2) of the Income Tax Act:The revenue filed a miscellaneous application seeking rectification of the Tribunal's order dated 20.09.2022 in ITA No. 07/CTK/2022. Section 254(2) allows the Appellate Tribunal to rectify any mistake apparent from the record within six months from the end of the month in which the order was passed. The Tribunal can rectify clerical, grammatical, or arithmetical mistakes without re-argument or reappraisal of facts. The Tribunal noted that the scope of rectification is limited to correcting apparent mistakes and does not extend to recalling the entire order for a fresh decision.2. Allowability of Employees' Contributions to PF and ESI under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act:The issue of whether employees' contributions to PF and ESI are allowable if not paid before the due date under the respective Acts was addressed. The Tribunal initially allowed the contributions, but the revenue sought rectification based on the Supreme Court's decision in Checkmate Services Pvt. Ltd. The Tribunal acknowledged that the Supreme Court held that such contributions are disallowable if not paid within the due date prescribed under the relevant Acts.3. Application of the Supreme Court Decision in Checkmate Services Pvt. Ltd. Case:The Tribunal considered the Supreme Court's decision in Checkmate Services Pvt. Ltd., which was rendered on 12.10.2022. The Supreme Court held that employees' contributions to PF and ESI, if not paid within the due date under the respective Acts, cannot be allowed under Section 36(1)(va). The Tribunal noted that this interpretation applies from the date of incorporation of the said proviso, making the Tribunal's earlier order erroneous. Consequently, the Tribunal recalled its order dated 20.09.2022.4. Re-adjudication of the Issue by the Assessing Officer:The Tribunal restored the appeal to its original number and heard it on 13.01.2023. The Tribunal followed the Supreme Court's decision and held that delayed payments of employees' contributions to PF and ESI are not allowable under Section 36(1)(va). The Tribunal also referred to a similar case, Nirakar Security & Consultancy Services Pvt. Ltd. vs. ITO, where the issue was restored to the Assessing Officer for re-adjudication. The Tribunal granted liberty to the assessee to make all necessary submissions regarding the allowability of disallowed contributions under other relevant provisions, such as Section 37(1).ConclusionThe miscellaneous application filed by the revenue was allowed, and the Tribunal's order dated 20.09.2022 was recalled. The appeal was restored to the file of the Assessing Officer for re-adjudication, granting the assessee the opportunity to present arguments regarding the allowability of disallowed contributions under other provisions. The appeal of the assessee was partly allowed for statistical purposes.